Tax Measures for Tough Times
Displaced Workers May be Eligible for Hardship Tax Breaks According to Liberty Tax Service
(Virginia Beach, VA) Taxpayers who are currently unemployed or who face possible layoffs may find some relief from tax measures designed to help those facing hardships, according to Liberty Tax Service. These tax breaks include the tax credit for child and dependent care expenses paid when looking for work, a tax credit for health coverage when a worker is laid off, retirement plan withdrawals without penalty when paying for unreimbursed medical expenses, and a deduction for job-hunting expenses for those who itemize.
“Those who must pay for child and dependent care in order to go on job interviews may claim up to 35% of these expenses as a credit against their tax,” said John Hewitt, CEO and Founder of Liberty Tax Service. “This is accomplished by filing Form 2441, Child and Dependent Care Expenses with the tax return.”
This nonrefundable tax credit is based on the smaller of amounts paid for child and dependent care or the earned income of the taxpayer claiming it. For a married couple filing jointly, both spouses must have earned income or one of them might qualify as a full-time student or be disabled and incapable of self-care.
For qualified former employees who were downsized due to trade considerations, the Health Coverage Tax Credit is a refundable credit that can cover 65% of health care costs for them and their families when participating in health insurance plans. Qualified persons are defined by Trade Adjustment Assistance (TAA) or Alternative Trade Adjustment Assistance (ATAA) requirements for former employees and retirees aged 55 and older whose pensions were taken over by the Pension Benefit Guaranty Corporation (PBGC). To determine eligibility for monthly payments, a taxpayer can contact the HCTC. File Form 8885, Health Coverage Tax Credit, with the tax return to claim the credit which can give a refund even when no tax has been withheld.
Taxpayers with unreimbursed medical expenses in excess of 7.5% of their adjusted gross income can pay the excess amount with early withdrawals of funds from a 401(k) or IRA account without paying the 10% additional tax. This is done by reporting the appropriate exception number on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and entering the amount of the distribution that qualifies for the exception.
The tough project of looking for employment may provide a tax break in addition to the childcare tax credit mentioned above. Liberty Tax Service reminds job seekers that documenting the costs of a job search may deliver a tax break whether it results in a new position or not. This applies for persons looking for a change within their current profession. Job search expenses may be deductible when, totaled with employee expenses and other miscellaneous deductions, they exceed 2% of adjusted gross income. These are reported on Schedule A Itemized Deductions which is filed with Form 1040.
The IRS allows the following job-hunting expenses:
- Employment and out placement agency fees
- Costs of resume printing
- Costs of typing, printing and mailing resumes
- Legal fees related to doing and keeping your job
- Some travel expenses to and from job interviews
There may be other job expenses due to layoffs. If a taxpayer incurs legal expenses to fight a non-compete clause, these expenses may be claimed as a job-related expense. Some employers offer “income aid packages” to employees laid off solely due to lack of work. Employees who do receive “an income aid package” must declare it as income in the tax year it was received. They can repay the amount and deduct it in the following tax year.
About Liberty Tax Service
Liberty Tax Service is the fastest growing retail tax preparation company in the
industry’s history, with over 3,000 offices in the United States and Canada. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 6,000,000 individual income tax returns. With 40 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service (NYSE:JTX).
Liberty Tax Service (www.libertytax.com) provides computerized income tax preparation, electronic filing, refund loans, and online filing through eSmart Tax at www.esmarttax.com. Each office offers customers audit assistance, a money back guarantee, and free tax return checking. The Liberty Tax Service franchise opportunity has climbed to #3 on the latest Entrepreneur “Franchise 500.”